The general rule under the Property (Relationships) Act 1976 is that once you have been in a marriage, civil union or de facto relationship for more than three years, upon separation all relationship property is to be divided equally. However the Court does have the discretion to divide relationship property unequally in limited circumstances. The economic disparity provision is one of these circumstances, and effectively allows for one party to seek a greater than equal share.
This provision applies if the income and living standards of one partner are likely to be significantly higher than the other because of the effects of the division of functions within the relationship. In this situation, the Court can order a lump sum payment or transfer of relationship property to the economically weaker party to compensate for this economic disparity.
When considering whether to make an order, the Court will generally look at:
- The likely earning capacity of each spouse or partner;
- The responsibilities of each spouse or partner for the ongoing care of any children of the relationship; and
- Any other relevant circumstances.
This can be used both to compensate a party for the impairment of their own earning capacity, as well as the enhancement of the other party’s earning capacity.
The disparity must be in both living standards and income, and it must be ‘significant’. Determining whether the disparity is significant is very case-specific. Generally speaking the greater the income and assets of the parties, the greater the disparity required before the threshold is met. In one case an approximately $8,000 difference in annual income was considered sufficient, where the parties had fairly modest finances. However in situations where the parties were more affluent, this would likely not be considered a significant enough disparity.
The ‘typical’ economic disparity situation is where one party has foregone their career in order to be a stay-at-home parent, allowing the other party to advance their career. However this is not the only situation that creates economic disparity and it is something that needs to be considered in the context of a relationship property division.
The level of compensation awarded varies considerably, and depends on the size of the relationship property pool. There has been a case where the Court divided the relationship property pool 70% – 30% in favour of the economically weaker party, but this is seen as being at the higher end of the scale.
Incorporating economic disparity claims into a Contracting Out Agreement (or attempting to exclude them) can be difficult, as future circumstances are so unknown. Careful drafting is required to make such an Agreement as watertight as possible, but it is important to remember that the Court has the ability to set aside an Agreement if it would cause ‘serious injustice’. This is a high threshold, which will inevitably vary depending on the circumstances. Attempting to avoid an Agreement becoming seriously unjust is one reason why it should be regularly reviewed. See Family Court Sets Aside Contracting Out Agreement for further information.
If you would like further information or advice, please contact our Wellington based family lawyers Debbie Dunbar, email firstname.lastname@example.org, phone (04) 495 9940 or Maretta Twentyman, email email@example.com, phone (04) 495 8918.
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